Tuesday, February 5

Professor Nanda, a lecturer at Harvard University, gave us a talk today and explained some of the different areas that are faced at a negotiation between an entrepreneur and a venture capitalist. It was interesting to walk through a case study that covered both sides of the term sheet, and see how the two sides saw the same situation and related to each other. It made me aware of the difficulties faced by both sides in this situation.

Ramada talked through a lot of the key negotiation areas of the term sheet, focusing on the various stock options that are available and how that relates depending on how well the company does. It was interesting to see how a seemingly minor word in the term sheet, can make the difference of many millions when it comes to paying back the investor. Looking at the backgrounds of both the VC and the entrepreneur and seeing how each can view the same situation was interesting, such as the make-up of the board and the valuation of the company.A main portion of the talk was invested in how each side can come up with widely different evaluations for the same company based on the same data, and how key figures such as price to earnings ratios and discount rates can widely affect the value of a company. It was also interesting to hear how much of the valuation is “fudged” to match the figures that either the VC or the entrepreneur wants to see, rather than what is actually the case.

The talk from Ramada was extremely interesting, and has given me a basic understanding of many of the concepts found in a relationship with a venture capitalist. He was extremely good at explaining the information so that it made sense to me. It was a strange situation because many people in the group, including myself, hadn’t discussed a case study in this setting before, and I though Ramada adapted really well, to what was obviously a lot quieter session than he is used to at Harvard.